Housing Starts Continue to Impress
Builders broke ground on new homes at an annualized rate of over 1 million homes in January making it the tenth month in a row over that rate.
Housing starts were down nearly 4 percent from December but continue to follow an upward trend. Falling mortgage rates are fueling builder optimism in the upcoming housing market, and builders are starting to build new homes at a rate of nearly 2 percent more than last year.
All indicators point to a housing market that will be one of the driving forces of the U.S. economy in 2016.
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Slower Home Building Pace Not Accurately Reflecting Market
Housing starts were slow in some areas of the country last month due to adverse weather conditions.
But building permit applications performed much better than housing starts. Single-family home permits have risen nearly 10 percent over the last year. While weather can slow builders from starting projects, it doesn’t stop them from applying to build homes.
Housing permits fell 0.2% from December. Builders are still interested in building homes, if they can physically start their projects. We could see new homes being built at a faster clip as builders take advantage of improving weather.
Why do Housing Starts Matter?
A housing start is when the construction of a new home officially breaks ground.
The number of new homes being built helps predict the future health of the housing market. Builders must be confident in the economy and future home sales if they start construction on a home that will be completed in three to six months.
A large number of starts shows optimism in the market, and starts have been increasing steadily over the last six years. Housing starts are expected to increase next month in response to January’s performance and should gradually increase during the year.
Low Mortgage Rates Drive Builder Confidence
Mortgage rates may continue to stay low during 2016. The expectation for low mortgage rates could prompt builders to continue construction at a fast clip.
The supply of homes for sale shrank over the last year. Homebuyers are eager to purchase homes at today’s rates, and the supply of homes isn’t meeting demand. Home builders will want to build new houses to meet that demand.
All of these signs point to a healthy housing market.
Low rates are also spurring new and repeat buyers to move forward with their homeownership goals. On average, home shoppers increase their buying power by 11% for every 1% reduction in their mortgage rate.
Overall, 2016 should be an ideal year to buy a home at an affordable cost.